Section 153 withholding: getting the category right
Section 153 is the most frequently applied withholding provision in Pakistani business, and the one where most errors originate. The rate is not hard to find. Deciding which row of the table you are in is where it goes wrong.
Three limbs, not one
Section 153 covers three distinct things, and a payment has to be assigned to one before any rate is chosen:
- Supply of goods — the recipient sells you something they own.
- Rendering of services — the recipient performs work for you.
- Execution of a contract — typically construction, assembly, installation and similar arrangements.
Selecting a rate from a label like "vendor payment" without identifying the limb is the single most common error, and it is why mixed invoices need splitting rather than averaging.
Tax Year 2027 goods rate table
Shown as active taxpayer / inactive taxpayer. Specific categories override the general rows.
| Supply category | Active | Inactive |
|---|---|---|
| Rice, cottonseed oil or edible oil | 1.5% | 3% |
| Distributor of pharmaceutical products | 1% | 2% |
| Gold, silver and articles thereof | 1% | 2% |
| Distributor of cigarettes | 2.5% | 5% |
| Other goods — company, non-toll | 5% | 10% |
| Other goods — non-company, non-toll | 5.5% | 11% |
| Other goods — company, toll manufacturing | 9% | 18% |
| Other goods — non-company, toll manufacturing | 11% | 22% |
A separate reduced entry can apply to specified, fully integrated active distributors, dealers and retailers meeting all listed conditions. Do not select it from an industry description alone. For services and contracts, establish the applicable rate for the specific limb — see the rate card.
You bought or sold property this year, tax was deducted at the time of registration, and nobody explained whether you get it back.
The toll manufacturing distinction
The test is substance. If you supply the raw material and the other party processes it for a conversion fee, that points to toll manufacturing even where the paperwork describes a purchase. Establish the arrangement in the contract and apply the rate that matches it, because the exposure for under-deduction sits with you as payer.
Splitting a mixed invoice
A single invoice covering more than one limb needs apportioning:
- Ask for separate lines with separate values. Most suppliers will provide this if asked before the invoice is raised.
- Apply the correct rate to each component, and record the split on the payment voucher.
- Where components are genuinely inseparable, establish the dominant character of the supply and document the reasoning.
- Never average the rates. An averaged deduction is wrong on both components rather than right on either.
The withholding agent checklist
- Identify the limb — goods, services or contract.
- Establish whether the recipient is a company from registration particulars, not the trading name.
- Check the specific category before defaulting to the general row.
- Verify ATL status at the transaction date and save the dated result with the voucher — checking status.
- Deduct at payment or credit, whichever the section requires.
- Deposit on the prescribed date under the correct head, so the credit attaches to the supplier.
- Issue the certificate and file the statement, reconciled to the ledger.
Services and contracts: the other two limbs
The goods table gets published everywhere; the other two limbs get less attention and cause as many problems.
- Services. Rates differ between company and non-company recipients, and specified service categories — including certain professional and transport services — have historically carried their own rates. Several service rows operate as minimum tax rather than adjustable, which changes what the recipient can recover.
- Contracts. Execution of a contract covers construction, assembly, installation and similar arrangements. A construction contract is not a supply of goods even though materials pass, and it is not a service in the ordinary sense either — it is its own limb with its own rate.
Where the exposure sits
Under-deduction, non-deduction or late deposit exposes the payer to recovery of the tax, default surcharge and penalty — and can put the deductibility of the underlying expense at risk. That last point is often overlooked: a withholding lapse can increase your taxable income as well as creating a withholding liability.
Two practical consequences. First, where status is unclear, deduct at the higher rate and let the supplier resolve their position through their own return. Second, review your deduction matrix against the current table at least annually — rates are re-enacted each year. See what ATL status costs per transaction.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
- Withholding Tax Rate Cards (FBR)
- Tax Year 2027 withholding rate summary (KPMG Pakistan)
- Income Tax Basics (FBR)
- Finance Act 2026 (FBR)
Questions people also ask
One invoice covers equipment and installation. What do I deduct?
Split it. Supply of goods and rendering of services are different limbs of section 153 with different rates, and a single deduction applied to the whole invoice will be wrong on one part of it. Ask the supplier to price and describe the components separately. Where they refuse and the components are genuinely inseparable, establish the dominant character before deducting and document the reasoning.
How do I know whether a supplier is a company for this purpose?
From their registration status rather than their trading name. Many businesses trading with "company" or "enterprises" in the name are sole proprietorships or associations of persons, and many are the reverse. Check the registration particulars rather than inferring from the letterhead, because the company and non-company rates differ.
What is toll manufacturing and why does it matter so much?
Broadly, an arrangement where you supply the materials and the other party processes or manufactures them for a fee, rather than selling you finished goods they own. It matters because the rate is roughly double the ordinary goods rate. Arrangements are sometimes structured or described as ordinary supply when the substance is toll manufacturing, and the substance governs.
Is section 153 deduction adjustable or minimum tax?
It varies by limb and by recipient circumstances, and the distinction determines whether the recipient can recover an excess. Because that changes the commercial negotiation as well as the tax outcome, establish the character for the specific payment rather than applying one assumption across all your suppliers.
We pay a supplier monthly on retainer. Do we check ATL status every month?
You should re-check periodically at minimum. Status is applied at the transaction date and changes annually, so a retainer paid at the active rate for twelve months is an exposure if the supplier dropped off the list in March. Build the check into the payment run rather than doing it once at onboarding.
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